Rising non-performing assets (NPAs), overleveraged large companies and the general unwillingness of banks to lend money has meant small businesses are now finding it next to impossible to raise money. As loan portfolios sour, banks do not want to take the risk of lending to an SME.

Coupled with that is the fact that a large number of small businesses have no access to formal sources of finance, are under banked or have little or no credit history. For these businesses, there is no chance of getting a bank loan. It is with this understanding that a troika of entrepreneurs banded together to start Loan Frame.

"There is a huge opportunity to make a significant difference to SMEs who are currently underbanked," says CEO and co-founder of the two-year-old startup, Shailesh Jacob. "There are over 50 million small business establishments in India and only 10% among them have access to institutional credit. We wanted to trim this gap by enabling lenders to provide low cost, simple and fast loans to small businesses," he adds.

SME-focused online lending platform Loan Frame offers an entire portfolio of products, including secured and unsecured loans ranging from as low as Rs 1 lakh to as high as Rs 50 crore.

"Traditionally, SMEs have limited options on loan products, but we provide as many as 50 distinct products to suit their various requirements," says CFO and co-founder of Loan Frame, Rishi Arya. "We also cater to a wide variety of sectors including retail, manufacturing, healthcare, IT services as well as FMCG," he adds.

No small matterIn addition to redefining the experience of borrowing in India's web-based lending space, the startup also helps lenders build, grow and manage their SME loan portfolio. It thus operates in a two-sided market with equal importance given to both SME borrowers and lenders.

"Over and above solving borrowers' credit needs, we seamlessly on-board our lending partners and work with them to run the whole process in a very efficient way, such that there is minimal capital and human resource investment from their side," says Arya.

Its use of machine learning algorithms and cutting-edge technology to reduce SME loan processing time to just a few days, further sets them apart in this landscape.

"We have an intuitive front-end interface with layers of powerful technology working in the background," says Head of corporate development at Loan Frame, Akshun Gulati. "Today, we have an ecosystem of mobile apps, web applications, proprietary core systems and third party tools, among others," he adds.

The founders insist that their marketplace brings together banks, NBFCs and other lenders on one platform to provide quicker, easier and fully transparent processes. "Our underwriting process combines technology with a deep understanding of India's SME credit scenario to deliver better-priced and more flexible credit that a bank's standardised loan products cannot match," says Jacob.

He also emphasised that borrowers are typically lent to at a much lower risk because of the support of independent credit and risk assessments.

The startup uses proprietary technology tools and models to help lenders in borrower evaluation, however, the final credit decision always rests with the lenders. These tools enrich the SME borrower's profile for evaluation by a lender by complementing traditional data with new age digital data such as social data, transaction data, search data among others.

It uses automation and machine learning technology to gain competitive advantage in the decision making process by making lending decisions more accurate, efficient/cost effective, and also reduce the loan turnaround time for its lending partners.

Since the company is not restricted by way of lending its own capital like NBFCs are, there is a higher cap on the size of the product, enabling it to provide loans up to Rs 50 crore.

Also, like deep-pocketed loan companies before them, Loan Frame is also establishing strategic partnerships with large entities including e-commerce firms. Since these platforms already have a large SME base, it helps the startup increase its outreach.

Bucking the trendLoan Frame has grown rapidly since 2016. In just the last one year, the startup has received loan requests from SMEs totalling up to over $1 billion. "In a very short span of time, we have been able to develop and launch a wide variety of technology-enabled SME lending products and gain trust of both SMEs and lenders," says Jacob.

Borrowers can apply for a loan by logging on to the company's website or by downloading its app. After a 60-second eligibility check, borrowers can apply for the loan using minimal paperwork, upload the documents and then choose the loan. "Based on our assessment of the needs of the borrower, we give them options at the most competitive interest rates, taking a small cut of each successful transaction" says Jacob.

Loan Frame currently has over 12,000 registered SMEs on its platform. The startup has also enabled 14 lending partners - including private sector banks and leading NBFCs - to lend to SMEs using its services.

In fact, Jacob claims that Loan Frame clocked Y-o-Y revenue growth of over 2000% since it first started up - no small feat.

Loan Frame also raised one round of capital of $2.25 million led by Vedanta Capital, represented by Parag Saxena. Other key investors and advisors that participated in the round included Sanoch Management, represented by William Campbell, who was the former Chairman and CEO of Visa International and Citibank Global, respectively. "We have been capital efficient throughout our journey and have not felt the need to raise a second round as yet," adds Jacob.

Wealth of opportunityAs per a Credit Suisse report, the SME lending market is expected to grow from $178 billion in 2016 to $ 846 billion in just 10 years. Hailed as the backbone of the Indian economy, its importance also cannot be overstated.

"We are living in unprecedented times against the backdrop of the India Stack (Aadhar, eKYC, e-signatures), demonetization, GST, growing internet users, increased smartphone penetration and decreasing data costs," says Jacob. "Given this scenario, the number of SMEs coming to formal lending channels will be significant," he adds.

An IFC report from late 2012 further stated that the financial requirements of SMEs in India stood at $650 billion. Even though most lenders - including PSU banks - want to create an SME loan book, they are unable to do so profitably due to execution related challenges such as dependence on traditional underwriting and high cost origination process.

Convincing them to lend to SMEs using Loan Frame's propriety technology was one of the startup's biggest challenges initially.

"Operational costs are a big deterrent to banks when it comes to lending to SMEs. We use technology to streamline this process and reduce operational costs involved in origination, underwriting and disbursal," says Jacob. "Now that the merit is proven, we find many lenders approaching us for an SME portfolio partnership," he adds.

Loan Frame plans to expand to over 10 cities and adjacent areas within the next two years while increasing its SME customer base 10 times. It will also use the newly-minted funding to introduce more loan products and increase their corporate partnerships.

"Our objective is to be the largest SME lending player in the country. We want to be the preferred choice for SMEs when it comes to seeking business loans - irrespective of their location, the industry they operate in or the product they require," says Jacob. "We also strive to be the preferred partner for lenders and help them create, manage and grow their SME lending portfolio," he adds.

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